Company Reduces Total Debt
- Company reports net income of $3 million, or 9-cents per diluted share
- Original Equipment business improves gross margin performance
- Company lowers total debt by $93 million
- Working capital improvements generate $87 million in cash
LAKE FOREST, ILLINOIS, OCTOBER 21, 2003 – Tenneco Automotive (NYSE: TEN) announced today that the company reported net income of $3 million, or 9-cents per diluted share, in the third quarter of 2003, versus net income of $5 million, or 13-cents per diluted share in the third quarter of 2002. The company generated $103 million in cash flow before financing activities, which reduced bank and bond debt to $1.404 billion. The company's strong cash performance in the quarter was primarily driven by $87 million in cash from working capital improvements, including reductions in receivables and inventory, and a 15 percent decrease in capital spending year-over-year.
"We are pleased with our performance in generating cash and continuing to pay down debt. We ended the quarter with borrowings under our revolving credit facility at zero and our bank and bond debt at the lowest level since becoming a stand-alone company," said Mark P. Frissora, chairman and CEO, Tenneco Automotive.
The company reported revenue of $915 million for the quarter versus $856 million in the third quarter 2002.
EBIT (earnings before interest, taxes, and minority interest) was $39 million in the quarter, down $1 million compared with third quarter 2002. EBIT before depreciation and amortization (EBITDA) was $79 million for the quarter, versus third quarter 2002 EBITDA of $75 million. See the table entitled, "Reconciliation of GAAP Results to non-GAAP Results," which is attachment 2 to the press release for more information about EBITDA and other non-GAAP results in this press release.
The third quarter 2003 results include pre-tax restructuring related expenses of $1 million, or 2-cents per diluted share, and a $3 million, or 9-cents per diluted share, tax benefit related to adjusting tax accounts to reflect the 2002 tax returns filed in the third quarter. In addition, the company reduced inventory balances by $17 million, primarily in the European aftermarket, which decreased the quarter's EBIT by $4 million. This EBIT decrease was the result of inventory absorption costs - fixed manufacturing costs that the company continued to incur in spite of the lower production levels necessary to drive inventory down. Because of the lower production levels, a greater portion of the fixed manufacturing costs were recognized in the income statement rather than allocated to inventory balances.
The third quarter 2002 results include pre-tax restructuring related expenses of $3 million, or 4-cents per diluted share, and a $2 million, or 6-cents per diluted share, tax benefit as a result of a change in the effective tax rate.
The company's total gross margin for the quarter was 20.5 percent versus 21.1 percent one year ago. Gross margin performance was negatively impacted by lower global aftermarket sales and the higher absorption costs associated with inventory reductions, which together more than offset improved gross margins in the company's original equipment business. Compared to one year ago, the gross margin for the European original equipment business improved nearly two percentage points and nearly one percentage point in the North American original equipment business.
The original equipment business gross margin improvement reflects cost savings generated by the company's focus on integrating its operations and improving manufacturing and distribution efficiency worldwide. In addition to Lean initiatives and global supply chain improvements, Six Sigma programs generated $6 million in savings during the quarter and Project Genesis, a global restructuring program, generated $5 million in incremental savings.
"We have a more variable cost structure in place to help offset some of the volume softness that we're seeing in our markets worldwide. However, we must continue to control costs and implement processes to improve our operating efficiency," said Frissora. "The global aftermarket continues to pull down our overall performance. We are continuing to adjust our manufacturing footprint and reduce capacity to help offset the tough market conditions. We are also pursuing opportunities to expand into new aftermarket product categories."
Tenneco Automotive again outperformed the requirements of its bank debt covenants. At September 30, the leverage ratio was 4.30, below the maximum limit of 5.25; the fixed charge coverage ratio was 1.47, exceeding the minimum required ratio of 0.95; and the interest coverage ratio was 2.55; exceeding the minimum required ratio of 1.80.
- North American original equipment revenue was $329 million for the quarter versus $337 million in third quarter 2002. Revenue was down 2 percent, versus an estimated market decline of 5 percent. Excluding the impact of lower pass-through catalytic converter sales, revenue was flat.
- North American aftermarket revenue was $123 million versus $129 million one year ago. The decline was primarily due to a 9 percent decline in exhaust sales.
- EBIT for North American operations was $32 million compared with $36 million in the third quarter of 2002. The EBIT decline was the result of lower volumes and higher marketing costs in the aftermarket business, which were partially offset by improved manufacturing efficiency in the original equipment operations. Third quarter 2002 EBIT included $1 million in restructuring related expenses.
- European original equipment revenue increased to $253 million from $219 million in third quarter 2002. Before the impact of favorable currency and pass-through catalytic converter sales, revenue was $167 million, versus third quarter 2002 revenue of $163 million excluding pass-through sales. Significant year-over-year reductions in OE exhaust volumes impacted revenue and partially offset OE ride control volume increases on new platforms.
- European aftermarket revenue was $92 million compared with $86 million in third quarter 2002. Excluding the impact of currency, revenue was $78 million. The revenue decline was largely the result of a 14 percent decline in aftermarket exhaust sales, adjusted for currency.
- European EBIT was a loss of $2 million compared with a loss of $1 million the previous year. Favorable currency exchange rates benefited third quarter 2003 EBIT by $1 million. The company's European original equipment business posted year-over-year earnings improvement. However, absorption costs of $4 million for reducing inventories and restructuring related expenses of $1 million as well as the continuing aftermarket volume decline drove down overall earnings performance. Earnings were also negatively impacted by higher depreciation costs of $5 million associated with the opening of a new facility in Eastern Europe and the appreciating Euro. Third quarter 2002 EBIT included $2 million in restructuring related expenses.
REST OF WORLD
- The company's Australian operations increased revenue to $45 million from $31 million in third quarter 2002. Excluding the favorable impact of currency, revenue was $36 million. The increase was fueled by higher pass-through catalytic converter sales and strong volumes on existing platforms.
- Increased OE volumes in China and Thailand, including higher exhaust pass-through volumes in China, continue to drive revenue growth in Asia. Revenue from Asian operations was $42 million versus $30 million in third quarter 2002.
- In South America, the company reported revenue of $31 million, a 31 percent increase over the third quarter 2002 revenue. Excluding the impact of favorable currency exchange rates, revenue was up 22 percent.
- Combined EBIT for Asia, South America and Australia was $9 million in the third quarter 2003, compared with $5 million in the third quarter of 2002. Higher revenue, favorable currency exchange rates and manufacturing efficiencies drove the improvement.
Attachment 1 to this press release provides additional information on Tenneco Automotive's third quarter 2003 results.
- Statements of Income(Loss) - 3 Months
- Statements of Income(Loss) - 9 Months
- Balance Sheet
- Statements of Cash Flows
- Reconciliation of GAAP Results to Non-GAAP Results (A)
- Reconciliation of GAAP Results to Non-GAAP Results (A - YTD)
- Reconciliation of GAAP Results to Non-GAAP Results (B)
- Reconciliation of GAAP Results to Non-GAAP Results (B - YTD)
CONFERENCE CALL INFORMATION
The company will host a conference call on October 21, 2003 at 10:30 a.m. EDT. The dial-in number is 800 779-7694 domestic or 630 395-0023 international. The passcode is Tenneco Auto. The call will be available on the financial section of the Tenneco Automotive web site at www.tenneco-automotive.com. A copy of this press release, which includes in the attachments financial information to be discussed on this call, is available on the financial and news sections of the Tenneco Automotive web site at www.tenneco-automotive.com. A recording of this call will be available one hour following the completion of the call on October 21, 2003 through October 28, 2003. To access this recording, dial 800 839-8559 domestic or 402 998-1013 international and enter passcode 8400.
Tenneco Automotive is a $3.5 billion manufacturing company with headquarters in Lake Forest, Illinois and approximately 19,600 employees worldwide. Tenneco Automotive is one of the world's largest producers and marketers of ride control and exhaust systems and products, which are sold under the Monroe® and Walker® global brand names. Among its products are Sensa-Trac® and Monroe Reflex® shocks and struts, Rancho® shock absorbers, Walker® Quiet-Flow® mufflers and DynoMax® performance exhaust products, and Monroe® Clevite® vibration control components.
This press release contains forward-looking statements. Words such as "continue", "must", "pursuing", "implement" and similar expressions identify forward-looking statements. These forward-looking statements are based on the current expectations of the company (including its subsidiaries). Because these forward-looking statements involve risks and uncertainties, the company's plans, actions and actual results could differ materially. Among the factors that could cause these plans, actions and results to differ materially from current expectations are: (i) the general political, economic and competitive conditions in markets and countries where the company and its subsidiaries operate, including currency fluctuations and other risks associated with operating in foreign countries; (ii) governmental actions, including the ability to receive regulatory approvals and the timing of such approvals; (iii) changes in capital availability or costs, including increases in the company's costs of borrowing (i.e., interest rate increases); (iv) changes in automotive manufacturers' production rates and their actual and forecasted requirements for the company's products, including the company's resultant inability to realize the sales represented by its awarded book of business and the overall highly competitive nature of the automotive parts industry; (v) changes in consumer demand and prices, including longer product lives of automobile parts and the cyclicality of automotive production and sales of automobiles which include the company's products, and the potential negative impact on the company's revenues and margins from such products; (vi) the cost of compliance with changes in regulations, including environmental regulations; (vii) workforce factors such as strikes or labor interruptions; (viii) material substitutions and increases in the costs of raw materials; (ix) the company's ability to execute restructuring and other cost reduction plans and to realize anticipated benefits from these plans; (x) the company's ability to develop and profitably commercialize new products and technologies, and the acceptance of such new products and technologies by the company's customers; (xi) further changes in the distribution channels for the company's aftermarket products, further consolidations among automotive parts customers and suppliers, and product warranty costs; (xii) changes by the Financing Accounting Standards Board or other accounting regulatory bodies of authoritative generally accepted accounting principles or policies; (xiii) acts of war, riots or terrorism, including, but not limited to the events taking place in the Middle East, the current military action in Iraq and the continuing war on terrorism, as well as actions taken or to be taken by the United States or other governments as a result of further acts or threats of terrorism, and the impact of these acts on economic, financial and social conditions in the countries where we operate and (xiv) the timing and occurrence (or non-occurrence) of transactions and events which may be subject to circumstances beyond the control of the company and its subsidiaries. The company undertakes no obligation to update any forward-looking statement to reflect events or circumstances after the date of this press release. Additional information regarding these risk factors and uncertainties is detailed from time to time in the company's SEC filings, including but not limited to its report on Form 10-K for the year ended December 31, 2002. Further information can be found on the company's web site at www.tenneco-automotive.com.
Tenneco Automotive, Media Relations
(1) 847 482 5607
Tenneco Automotive, Investor Relations
(1) 847 482 5042